How Stock Market Works in India?

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The stock market is the investment space that is attracting most investors these days. This is just because of high returns in the short time span. But wait! Have you ever tried to understand how stock market works?

Now you must be wondering that the stock market is all about buying and selling securities and what is so complex about it?

But the securities or stocks you buy, have you ever thought about how this becomes available for buying or selling?

Can you trade in all the companies? If not! Then which companies’ stocks you can buy or sell in the share market.

You will get to know the answer to all these questions by understanding the working of the stock market.

How Stock Market Works in India?

The Indian stock market follows a complete hierarchy structure where each body is associated with a specific role to operate and manage the functionality of the share market.

Starting with SEBI, the regulatory body of the stock market in India, then there are stock exchanges, depositories, depository participants, and traders and investors.

Each and everybody plays a vital role in securing the investment of the traders and bringing in the opportunity for new companies to grow more through IPO.

On successful IPO listing of the company in the stock exchange, one can trade in shares of the respective company using the trading app or platforms provided to them by their depository participant.

But wait how to get access to the trading apps?

Well! For this, you need to search for the stockbroker registered with the major depository, NSDL, and CDSL.

The depository participant, on one hand, opens a gateway for demat a

ccount, the depositories are concerned with the operation and management of the demat account to ensure the safety and security of holdings in the demat account.

Let’s dive into the detail of each associated body to know how stock market works?

Stock Market Regulator in India

Securities and Exchange Board of India or SEBI is the stock market regulator established under the act 1992 is the regulatory body that performs the role of protecting investors’ interests and preventing fraudulent activities in stock market investment.

Some of the major functions of SEBI are:

Protecting investors’ interest
Promotion and development of the securities market.
Providing a platform to different departments of the stock market like stockbrokers, sub-brokers, portfolio managers, investment advisors, etc to regulate work.
Regulating operations of depositories, FPIs, and other credit rating agencies.
Keeping an eye on fraudulent activities like insider trading
Providing education and awareness about stock market investment.

In all, SEBI provides rules and regulations to ensure security in share market investment. Apart from this, there are other bodies that play a vital role in defining how the stock market works.

Let’s have a look at their role as well.

Stock Market Exchange in India

Next comes the different exchanges where the companies get listed to make their shares public.

No doubt these exchanges play a vital role and in defining how stock market works in India.

In India, there are four major stock exchanges:

BSE (Bombay Stock Exchange)
NSE (National Stock Exchange)
MCX (Multi-Commodity Exchange)
NCDEX (National Commodity and Derivative Exchange Limited)

The stock exchanges are concerned with the trading of stocks, bonds, ETFs etc. Now here the above two NSE and BSE stock exchanges list the equity shares and thus allow trading in the equity segment and currency segment.

On the other hand, MCX and NCDEX list the commodities that are traded in India. Further, non-Agri commodities like metal, crude oil, etc are traded on MCX while agri-commodities like cotton are traded on the NCDEX stock exchange.

Also, to track the performance of the listed companies in India, there are specific indices of the stock exchange.

Here the Sensex, which is the stock index of the top 30 companies listed on the BSE, Nifty is the stock index of NSE that enlists 50 large-cap companies that showed good performance in the last quarter.

These indices make it easier for beginners and other inventors to track the performance of a market, in understanding the trend, analyze the particular sector, and to know how stocks of a particular sector are performing in the stock market.

But here comes the question, how to trade in different stocks of these companies?

For this, you are provided with the depository participants that provide you the provision to open a demat account.

But before jumping to the process of a Demat account opening in India, let’s have a quick look at the depositories of the stock market.

Stock Market Depository in India

Apart from the stock exchanges, there are depositories that are concerned with the operations and management of the Demat account.

In India, there are two major depositories, NSDL (National Securities Depository Limited) and CDSL (Central Depository Securities Limited).

Both the depository performs a similar role, but on one hand, where NSDL is promoted by NSE and banks like IDBI, CDSL promoters are BSE and State Bank of India.

However, you cannot directly open a demat account in the depository but can choose the stockbroker that is registered with either or both the depositories mentioned above.

The major role of these depositories is to maintain the demat account and to keep them secure.

Stock Market Depository Participant

Now comes the depository participants that are registered with the depositories to offer demat account services.

Here the brokers are either registered with NSDL thus allowing trade in NSE or CDSL to offer trading provision in BSE listed companies or both.

You can choose the broker to open a depository account with which you want to trade.

Other than this, to offer different trading products to its clients, depository participants have to register with the specific exchanges.

Here the stockbroker registered with NSE/BSE offers the service of equity and currency segment.

While the broker that is registered with MCX or NCDEX or both also opens the gateway for commodity trade for its customers.

How to Start Stock Market Investment?

Now after understanding the structure of the stock market, now let’s understand how to start investing.

Now the stock market offers you different areas to invest in, Primary Market and Secondary Market.

The primary market is where the new securities and stocks are created. In simple terms, it is where the companies get ready to list in the stock exchange by getting the green signal from SEBI.

This is where the investors can apply for the IPO and reap the benefit of earning profit in the shortest time.

Once the companies get listed you can trade and invest in stocks in the secondary market that is being regulated by different bodies listed above.

But to invest in either of the markets, the basic requirement is to be a resident of India and to have a demat account.

However, there is no age limit for Demat account, but one must fulfill certain criteria and other requirements to trade seamlessly using the minor or major Demat account.

So, before discussing how to trade or invest in different markets it is important to gain complete information on share market accounts.

Stock Market Account

Till yet we discussed how stock market works and now after gaining enough understanding now let’s have a look at how to begin the journey in the stock market.

For this, you need to open a Demat account.

The stock market includes two different types of account, Demat and trading account.

On one hand, where a Demat account is useful in securing shares and securities in the dematerialized account, a trading account is meant for fund transactions involved in buying and selling securities.

For the seamless transfer of funds in the trading account, it must be linked with the bank account.

In all, to invest and operate the stock market account, it is important to get your Demat, trading, and bank account linked with each other.

To streamline this, most of the stockbrokers offer 3 in 1 account while some are offering 2 in 1 account with the linking facility of the bank account.

Let’s have a quick look at how to open a Demat account with the depository participant and what are the major requirements to consider while activating the account.

Stock Market Account Open

To open a Demat account in stock market, the first important step is to choose the right stockbroker.

For this, consider your investment or trading style.

If you are looking for a long-term investment, then choose the stockbroker that offers good fundamental research reports.

On the other hand, for intraday-specific trade or short-term trading, pick the broker with a good trading app offering an advanced trading platform.

Apart from this, there are beginners who only tend to invest in the IPO and thus they must choose the stockbroker with the least charges and the application offering all the information of the public offering and the user interface that streamlines the application process.

Here Choice is the stockbroker that comes with one solution for all kinds of traders and investors.

Opening a Demat account in Choice is further made simpler with an online process.

Let’s have a quick overview of the steps involved in opening a Demat account.

Visit the Choice website and click on “Open Demat Account.”
Enter the basic details in the form and verify your mobile number.
Next, upload the basic documents like Aadhar Card, PAN Card, Bank Passbook, etc.
Enter some more details like Age, Income source, Occupation etc.
Now proceed ahead to the Aadhar verification via. NSDL e-sign.
Here you just need to enter the Aadhar card number and OTP received on the registered mobile number.
Once done you have to follow the step of in-person verification as direction.
On successful verification, your account opens in a few hours.

Other than this the broker also offers an offline method, where you can download the demat account opening form from the website, fill it and send it along with other documents via courier to the nearest branch.

Documents Required for Demat Account Opening

To open a stock market account, one has to submit a few essential documents to validate the information.

This includes:

PAN Card
Aadhar Card
Bank Passbook
Canceled Cheque
Photograph

In case you want to trade in derivatives, you have to submit other essential documents like the last 6 months salary slip or account statement for Income Proof.

Now, entering the stock market for investment is not FREE. You have to pay certain fees to open the account and then to maintain it.

Thus there are two different types of fees:

Demat Account Opening Charges
Account Maintenance Charges

Before choosing the stockbroker make sure you consider both these charges to avoid any confusion later.

Here Choice Demat account opens an account for FREE while the annual maintenance charges or account maintenance is ₹200 per annum from the second year onwards.

So far we have talked about the structure and the process to make the way to the stock market.

Once you successfully activate the Demat account services, you can start investing in different products like IPO, equity, commodity, etc.

Along with this, you can make a decision of trading or invest in different products as per your financial plan.

So, beginning with the investment in the primary market, IPO let’s learn how to start making money in the share market.

How to Apply for IPO?

IPO as mentioned is the process by which the companies get listed on the stock exchange.

To apply for the IPO, one must have a demat account, a bank account, and PAN Card.

Now for the IPO application, there is the process called ASBA (Application Supported Blocked Amount) where the corresponding IPO application amount gets blocked in the savings account.

Here are the basic steps to apply for IPO online through Choice:

Open the Jiffy trading app.
Click on IPO and then select the IPO in which you want to apply.
Enter the number of lots and the bid value.
The corresponding amount gets blocked in the savings account till allotment.
If the shares are allotted the amount gets debited and the shares are transferred to the Demat account after a few days.
You can sell those shares immediately on a listing day to make money from listing gains or can hold them in the Demat account.

How to Pick Stocks for Long Term?

Apart from applying in IPO you can buy or sell shares in the secondary market too and hold them for the long term.

As already known, the share market gives you a high return in comparison to other available investment options, but this is only possible if you choose the right stock.

To select the one, it is good to check the index. For beginners, it is always recommended to choose the stocks that are listed in the index as there is less risk involved.

Other than this, you can invest in blue-chip companies’ stocks and can also follow tips for share market investment.

For experienced investors, it is useful for the fundamental analysis of the company to get an idea of the current income, future growth prospects, and further debt and other financial ratios.

The one with the right knowledge of such financials helps you in choosing the right company and eventually the right stocks.

How to Do Intraday Trading?

The stock market brings in an opportunity for every kind of investor and trader. So, if you are aware of how stock market works and is looking forward to making instant profit then intraday trading is the option for you.

But here, since intraday trading is all about making quick money hence it is highly risky.

This makes it more important to pick the right stock. But How?

To pick stocks for intraday, it is important to stay updated with the stock market news.

Other than this, you can do the technical analysis for intraday trading using charts and indicators.

For beginners, it is always recommended to choose shares that stock wisely by considering the various aspects like: